Explore BrainMass

Explore BrainMass

    Tax Investments May Acquire Bubba Brewing

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Tax Investments, Inc., is considering a cash acquisition of Bubba Brewing Co. for $202 million. Bubba Brewing will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carry-forward.

    Years 1-5 6-15 16-20
    Cash inflow (aftertax) $220,000 $240,000 $280,000
    Synergistic benefits (aftertax) $20,000 $22,000 $40,000

    The cost of capital for the acquiring firm is 12 percent. Should the merger be undertaken?

    Please provide all steps.

    © BrainMass Inc. brainmass.com June 3, 2020, 11:21 pm ad1c9bdddf
    https://brainmass.com/business/mergers-and-acquisitions/tax-investments-may-acquire-bubba-brewing-274654

    Solution Preview

    See the attached file.

    Tax Investments, Inc., is considering a cash acquisition of Bubba Brewing Co. for $2.02 million. Bubba Brewing will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carry-forward.

    Cost of Capital 12%

    The cost of capital for the acquiring firm is 12 percent. Should the merger be undertaken?
    Year Cash Flow (After ...

    Solution Summary

    The tax investments that may acquire Bubba Brewing is determined. The merger options are determined.

    $2.19

    ADVERTISEMENT